World leaders warn of rising protectionism

As the World Economic Forum closed amid protests in Davos, Switzerland, business and political leaders face the spectre of a rising protectionism that could worsen the global financial crisis. Leaders agreed a new trade deal was needed.

Reuters - Rising protectionism threatens to deepen the economic crisis and a new trade deal is needed more than ever to keep commerce flowing -- on that much trade ministers and political leaders are agreed.

But as so often in the politics of international trade, actions -- or lack of them -- belie words.

Trade ministers meeting on the sidelines of the World Economic Forum at this Swiss ski resort on Saturday vowed to treat a deal on the World Trade Organisation's long-running Doha round as their highest priority.

And they repeated a promise made by leaders of the G20 rich and emerging nations in November not to put up barriers to trade.

But they did not set a target date for the WTO's 153 members to meet to push for a Doha breakthrough -- not least because the United States still has no full-ranking minister as confirmation hearings continue for President Barack Obama's administration.

And the warnings and promises on protectionism fly in the face of a series of increased duties, reimposed subsidies and non-tariff barriers erected in the past few months.

"There's considerable focus on protectionism (at Davos), with all the right rhetoric," said BP and Goldman Sachs International chairman Peter Sutherland.

"But the rhetoric has not been justified by the performance of the governments to reach an agreement on Doha," said Sutherland, the first director-general of the WTO.

Sutherland shared the analysis of most trade ministers and the current director-general, Pascal Lamy, that a Doha deal would be an important bulwark against protectionism, and noted that failure to reach one was down to a small number of players.

Watered down

The Doha talks were launched in late 2001 to open up new trade opportunities and give developing countries a bigger stake in the global trading system, especially by eliminating distortions discriminating against them in farm trade.

But differences between and among rich and poor countries over everything from food to cars to banking have prevented a breakthrough until now, even though negotiators resolved many complicated technical issues last year.

At their November summit, G20 leaders called for an outline deal in Doha by the end of 2008, but Lamy concluded in December that the gaps were still too wide for ministers to meet.

A statement circulated after the ministers' talks said they had agreed to attach the "highest priority" to Doha, and recognised "the major progress made in 2008" as a "sound basis for an early resolution of the remaining differences in 2009".

That was watered down from an earlier draft that promised "the year 2009 shall be a year of breakthrough in these negotiations".

A statement from Swiss Economy Minister Doris Leuthard suggested minister could meet in the next few weeks, before the next G20 summit to hosted by UK Prime Minister Gordon Brown in early April -- an idea also floated by Egypt's Trade Minister Rachid Mohamed Rachid.

But Saturday's meeting did not agree a date, and Brazil's Foreign Minister Celso Amorim said a full ministerial meeting in the first half of his year would be counter-productive.

Brown is one of the strongest supports of a new trade pact to bolster globalisation and an open world economy, although his earlier slogan "British jobs for British workers" has come back to haunt him as leaders tackle the protectionist threat.

"If we don't act, protectionist tendencies will become paramount and we will have failed in this first stage of building a new global era," Brown said.

But protectionist tendencies are already evident. Ministers from Australia, Costa Rica, Egypt, India, Indonesia and New Zealand all expressed their concerns or pointed to measures against their exports in the last week.

Some of them have to defend their own moves -- such as restrictions on drugs sales and ports of entry in Indonesia or safeguard duties on steel in India.

The European Union's decision to reintroduce export subsidies for dairy produce -- which would be banned under Doha but allowed under present rules -- provoked outrage from food exporters. The WTO's Lamy, a former EU trade commissioner, said it sent the wrong political signal, whatever the technicalities.

Multi-billion-dollar stimulus packages and bailouts announced by a series of governments are also under scrutiny, with German Chancellor Angela Merkel warning that Berlin would take a close look at the U.S. aid package for the auto industry.

"There is a risk of a domino effect if some of the countries have stimulus packages with an element of protectionism in there," said Switzerland's Leuthard.

Controversial "Buy America" provisions in the $825 billion stimulus package passed by the House of Representatives have also worried many countries, although acting U.S. Trade Representative Peter Allgeier said the department was working to ensure the bill would comply with international trade rules.

Allgeier said he hoped the Senate would hold confirmation hearings for Obama's nominee as trade representative, Ron Kirk, in the next couple of weeks, and many ministers said they understood that the Obama administration needed time to settle in and work out its stance on trade.

But with news coming almost daily of slumping exports and contracting trade flows, the pressure to act is on.

South Korean data on Sunday showed the country's exports in January fell by a record 32.8 percent year on year.

"The crisis that's enveloping the world economy waits for no man," said New Zealand Trade Minister Tim Groser.